Here's how UK businesses can protect themselves against a strengthening US dollar

Sarah Spickernell is an Online Writer at City A.M. She can be contacted at sarah.spickernell@cityam.com. She is particularly passionate about: Science, healthcare and technology

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A strong US dollar makes exports to Europe more expensive (Source: Getty)

The US dollar's strength is surging against the pound and the euro – a trend that could cause problems for some UK businesses.

As international confidence in the US economy intensifies, many investors have turned to the dollar as a much safer bet than its Asian or European counterparts, with China's growth slowing and Europe's economy continuing to struggle.

The value of the euro, it's main rival currency, dropped to its lowest value in 11 years last month as forecasts painted an even bleaker outlook for the single currency zone.

The result of this is that exports from the US will go up in price for foreign firms, and trading could be affected for companies dealing in more than one currency.

Carl Hasty, director of the currency advisory firm smartcurrencybusiness.com, suggests three ways UK businesses can prepare to weather any storm that might come their way.

“Given the capricious nature of currency markets, UK businesses currently benefitting from US dollar strength need to have strategies in place to deal with a strong dollar and the possibility of significant changes in the current dollar trend,” he said.

Carefully time currency conversion

UK businesses need to determine the best time to convert income charged in US dollars back into sterling, according to Hasty. He suggests making the most of the moment when the dollar is strongest against the pound, and acting before the situation starts to reverse:

“A UK company invoicing in dollars may want to convert dollars back to sterling sooner rather than later, in case the dollar starts to weaken, resulting in less income per dollar earned,” he explained.

Ensure assets are valued in same currency where possible

“UK companies with operations in the US need to ensure that their assets and liabilities are valued in the same currency as much as possible,” said Hasty.

This is because having assets in different currencies exposes businesses to the effects of currency volatility, which can in turn affect growth and their ability to finance operations.

Develop a robust currency-buying strategy

Hasty believes the most important thing for businesses to do in the face of a strengthening dollar is to develop a currency strategy. This, he says, will help them evade the risks associated with currency exchange rates moving against them:

“Currency markets can fluctuate greatly, and UK businesses need to be aware of the severe impact that this can have on their bottom line, as well as the steps available to mitigate the risks involved.”